The
respondents-assessees were engaged in the manufacture of mild steel rods, bars
or rounds. They claimed that as the articles manufactured by them fell under
item 1 of the list set out in the Fifth Schedule, they were entitled to a
higher rate of development rebate specified in section 33(1) (b) (B) (i) (a)
and to relief under section 80-1 of the Income-Tax Act, 1961.

The
Income-Tax Officer rejected the claim of the assessees, whereas the Appellate
As- sistant Commissioner, the Tribunal and High Court accepted their claim.
Hence the Revenue filed appeals before this Court.

The
contentions of the appellant-Revenue were that iron and steel ceased to be a
metal when it came out of the furnace in the primary steel mills in the form of
ingots. In the next stage the ingots became semi-finished products in the shape
of billets, blooms and slabs. It was said to be the stage where the raw materi-
als were converted into. In different form or shape; that the expression
"iron and steel (metal)" meant the iron and steel as it emerged in
the form of billets, blooms and slabs from the steel mill and that all subse- quent
products whether in the form of rails, rods (including wire rods), bars,
angles, channels, tees, sees, pipes, tubes, sheets, strips, plates and coils
would constitute articles made of iron and steel, and that rolling mills making
bars and rods were not covered by item 1 of the Fifth Schedule.

188 On
the other hand, the respondents-asses- sees contended that in the steel
industry the manufacture of ingots, billets, blooms, etc.

represented
only an intermediate stage at which the iron and steel metal became semi-
finished steel. When the semi-finished steel was converted into plates, bars or
rods, they became finished steel. The bars, rods and rounds, which were
continued to be iron and steel in a finished form, were used to manu- facture
the products of iron and steel by various processes, such as, rolling, cutting,
shearing, forging, hammering, etc. and that the products of iron and steel were
different from that of iron and steel (metal).

Dismissing
the appeals filed by the Revenue, this court,

HELD:
1. In interpreting the provisions in S.33(1)(b)(B)(i)(a), S.80-I of the
Income-Tax Act, 1961, the Court would do well to keep in mind the background in
which concessions to certain basic industries were introduced in the Income-Tax
Act. The historical background reflects the intention of the legislature to
grant progressively certain exemptions, re- liefs and concessions for certain
types of industries, which were considered important for national development.
The industry in iron and steel and other metals figured in all the lists. [199
C, 200 B]

2. The
incentive concession or relief granted under the provisions has to be con- strued
in a broad and comprehensive manner so as to cover all manufacturing activities
legitimately pertaining to the specified core industry with no limitation save
what may be called for by the wording of a particular entry. So far as items 1
and 2 are concerned, the wording points to a distinction between the metal
which is used as the base and other articles manufactured therefrom. Pig iron
and iron scrap are fed into furnaces to produce ingots, billets and blooms. But
both are iron and steel in different forms, the latter being referred to as
"semi-finished steel". Like- wise, the bars, rods, rounds, wire rods
and the like constitute the second stage in which one gets only
"finished" forms of iron and steel. Having regard to the nature and
weight of the metal, it has to be "finished" to assume these forms
before manufacturers of iron and steel articles can take over and proceed to
manufacture articles from them by drawing wires or converting them into rails
or shaping them into tees, zees, pipes, tubes and the like. [200 C-E]

3.
Whether the article produced is the raw material 01, an article made of iron
and steel has to be decided on the basis of the 189 nature of the article and
not the kind of mill which turns it out. It is significant that these items do
not draw distinction between basic steel mills, integrated steel mills and the
various other types of mills that are used in the industry. [200 G]

4. The
departmental instructions that machinery and plant in "rolling mills"
will not be eligible for the higher development rebate would not seem to be
justified if it intends to draw a distinction between the same machinery and
plant when used in rolling mills and when used in other mills in the industry.

If
machinery and plant installed in steel mills where the process includes not
merely the production of ingots, billets and the like but also the production
of bars and rods are eligible for the higher development rebate, it is
difficult to see why the same, plant and machinery, when installed in rolling
mills which proceed, from the stage of ingots or billets, to manufacture bars
and rods should not be eligible for the higher rate of devel- opment rebate.
[200 G-201 B]

5. In
considering the issue, the court should not be carried away be classifications
of stages of manufacture that may be relevant for other purposes. What the
court should examine is not the nature of the mill which yields the article but
the nature of the article or thing that is manufactured and ask the question
whether such articles or things can be considered as raw material for manufac- ture
of other articles made of the metal or is it itself an article made of the
metal. [201 B-C]

6. The
goods in the present case fail in the former category. The mild steel rods,
bars or rounds which are manufactured by the asses- sees are only finished
forms of the metal and not articles made of iron and steel. They only
constitute raw material for putting up arti- cles of iron and steel such as
grills or windows by applying to them processes, such as cutting or turning.
The rod or the wire rods are likewise not products of iron and steel but only
certain finished or refined forms of the metal itself. [201 C-D]

7.
Forging and castings are not covered by item 1 being articles made of iron and
steel but that since the legislature definite- ly intended to give relief even
in respect of such articles, item 11 and also item 21 were introduced. Even if
MS steel rods, bars and rounds cannot be taken as iron and steel (metal), they
would fail under the category of "forgings and castings" referred to
in item

11.
[201 G-H] 190

8. The
conclusion drawn by the High Court that the assessee was entitled to the higher
development rebate, though, it produced arti- cles only from iron scrap, does
not call for any interference. [202 C, D] C.I. T. v. Mittal Steel Re-tolling
and Allied Industries (P) Ltd., (1977) 108 ITR 207 (Kerala); CI. T.v. West
India Steel Co. Ltd., (1977) 108, ITR 601 (F.B.) (Kerala); Addl.

The Judgement
of the Court was delivered by RANGANATHAN, J. These appeals involve a common
question and hence can be disposed of by a common order. The respond- ent assessees
are steel rolling mills engaged in the manu- facture of M.S. (Mild Steel) rods,
bars or rounds. The question for consideration is whether they are entitled to
a higher rate of development rebate specified in s.33(1) (b) (B) (i)(a) and to
relief under s.80 I (as it stood at the relevant time) of the Income-tax Act,
1961. The answer to this question entirely turns on whether the assessees are
engaged in the manufacture or production of any one or more of the articles or
things specified in the relevant Schedule to the Act. They claim that the
articles manufactured by them fail under item 1 of the list of articles and
things set out in the relevant Schedule which reads:

"Iron
and steel (Metal), ferro-alloys and special steels".

This
contention was rejected by Income-Tax Officer but has been accepted by the
Appellate Assistant Commissioner, the Tribunal and the High Court. Hence these
appeals by the Revenue.

It has
been brought to our notice that there is a dif- ference of judicial opinion on
this issue among the High Courts. The Calcutta High court in Indian Steel and
Wire Products Ltd. v. Commissioner of Income-Tax, (1977) 108 I.T.R. 802, and
the Allahabad High Court in Commissioner of Income-Tax v. Kay Charan Pvt. Ltd.,
(1991) 190 I.T.R 190 have answered the question in the negative and against the
assessee. On the other hand, the Kerala High Court in C.I. T.v. Mittal Steel
Re-rolling and Allied Industries (1') Ltd. (1977) 108 I.T.R. 207 and CIT v.
West India Steel Co. Ltd. (1977) 108 I.T.R. 601, FB. The Madras High Court in
the judgment under appeal, reported as Addl. Commissioner of Income-tax v, Trich
Steel Rollling Mills Ltd., (1979) 118 I.T.R. 39, the Punjab & Haryana High
Court in C.I.T. v. Krishna Copper and Steel Rolling Mills, (1979) 119 I.T.R.
256; (hereunder appeal) C.I.T.v. Ludhiana Steel Rolling Mills, (1989) 180
I.T.R. 155; and the Allahabad High Court in Singh Engineering Works Pvt. Ltd.
v. C.I.T., (1979) 119 I.T.R. 891 have taken a view in favour of the assessee.
This controversy needs to be resolved.

192 It
may be useful, at this stage, to refer to three decisions of this Court, the
decisions or observations in which have influenced the High court.

(1)
The first of these is State of Madhya Bharat
v. Hiralal, (1966) 17 S.T.C. 313. This case arose under the Madhya Bharat Sales
Tax Act. Under section 5 of the said Act, two notifications had been issued.
The first notifica- tion exempted from sales tax certain listed goods, one of
which was "iron and steel", while the second notification specified
the rates and stages lot levy of sales tax on a number of articles, one of
which was"goods prepared from any metal other than gold and silver". Hiralal,
who owned a re-rolling mill, purchased scrap iron locally and imported iron
plates from outside and, after converting them into bars, flats and plates in
his mills, sold them in the market. He claimed exemption under the first of the
above notifications. This claim was upheld by this Court The judgment of the
Court is a short one, the relevant paragraph of which reads as follows:

"Learned
cournsel for the State contends that the expression "iron and steel means
iron and steel in the original condition and not iron and steel in the shape of
bars, flats and plates. In our view, this contention is not sound. A comparison
of the said two Notifica- tions brings out the distinction between raw
materials of iron and steel and the goods prepared from iron and steel; while
the former is exempted from tax, the latter is taxed.

Therefore,
iron and steel used as raw material for manufacturing other goods are exempted
from taxation. So long as iron and steel continue to be raw materials, they
enjoy the exemption. Scrap iron purchased by the re- spondent was merely
re-rolled into bars, flats and plates. They were processed for conven- ience of
sale. The raw material were only re- rolled to give them attractive and
acceptable forms. They did not in the process lose their character as iron and
steel. The dealer sold "iron and steel" in the shape of bars, flats
and plates and the customer purchased "iron and steel" in that shape.
We, therefore, hold that the bars, flats and plates sold by the assessee are
iron and steel exempted under the Notification. The conclusion arrived at by
the High Court is correct." (2) The second decision referred to is Devidass
Gopal Krishnan v. State of Punjab, (1967)
20 S.T.C. 430. Here, one batch of appellants before the Court carried on
business in rolling steel. They purchased steel scrap and steel ingots and
converted them into rolled steel sections. They 193 contended that the levy of
a purchase tax on the steel scrap and ingots side by side with a sales tax on
the rolled steel sections constituted double taxation of the same commodity
contrary to the provision of s. 15 of the Central Sales Tax Act, 1956. This contention
was rejected. It was held that the process by which the steel scrap (or ingot)
lost its identity and became rolled steel sections was a process of manufacture
and that, since the goods purchased and those sold were different, no question
of double taxation arose:

(3)
The third decision, Hindustan Aluminium Corporation Ltd. v. State of U.P.,
(1981) 48 S.T.C. 411, involved the interpretation of certain notifications
issued under section 3A(2) of the U.P. Sales Tax Act, 1948. The two
notifications with which the Court was concerned prescribed rates of tax at
which certain goods were taxable. item no.6 in the notification of 1973
described the goods as:

"All
kinds of minerals and ores and alloys except copper, tin, zinc, nickel or alloy
of these metals only." Item no. 1 of the second notification read:

All
kinds of minerals, ores, metals, and alloys including sheets and circles used
in the manufacture of brass wares and scraps containing only any of the metals,
copper, tin, zinc, or nickel except those included in any other notification'issued
under the Act." The appellant Corporation, which carried on the business
of manufacturing and dealing in aluminium metal and vations aluminium products,
claimed the benefit of these notifica- tions for its products. The High Court
held that, while aluminium ingots, wire bars and billets would fall in the
category of "metals and alloys", rolled products prepared by rolling
ingots and extrusions manufactured from billets must be regarded as different
commercial commodities from the ingots and billets and therefore outside the
category of "metals and alloys". Such rolled products included
plates, coils, sheets, circles and strips. The extrusions were manufactured in
the shape of bars, rods, structurals, tubes, angles, channels and different
types of sections. This conclusion was upheld by this Court The Court referred
to the history of the notifications issued by the State Govern- ment from time
to time in this behalf and came to the con- clusion that the inference was irresistible
that when such a notification referred to a metal, it referred to the metal in
the primary or original form in which it was saleable and not to any
subsequently fabricated form. The Court rejected the contention that the word
"all" used in the notification in referring to 194 "all kinds of
minerals, ores, metals and alloys" should be given its fullest amplitude
so as to include even subse- quently fabricated forms of the metal. The Court
felt that this construction was inconsistent with the scheme of the earlier
notifications to which reference had been made and observed:

"While
broadly a metal in its primary form and a metal in its subsequently fabricated
form may be said to belong to the same genus, the distinction made between the
two constitutes a dichotomy of direct significance to the con- troversy before
US." After referring to its earlier decisions in State of M.P.v. Hiralal,
(1966) 17 S.T.C. 313, Devi Dass Gopal Krish- nan v. The State of Punjab, (1967)
20 S.T.C. 430 and State of Tamil Nadu v. Pyarelal Malhotra, (1976) 37 S.T.C. 3
19, the Court concluded:

"We
are of the definite opinion that the only interpretation possible is that aluminium
rolled products and extrusions are regarded as distinct commercial items from aluminium
ingots and billets in the notification issued under the U.P. Sales Tax
Act." The above decisions were rendered in the context of the Sales Tax
Acts and notifications thereunder. They, however, bring out two points. First,
they make it clear that there is a real and clear dichotomy between "iron
and steel" and "products or goods made of iron and steel" and,
indeed, between any metal as such and the products or goods fabri- cated therefrom.
This is also clear from the various entries in the relevant schedules under the
Income Tax Act itself.

For
instance, item 2 in the List is: "Aluminium, copper, lead and zinc
(Metal). While ingots and sheets manufactured from scrap have been held to fall
under item 2, finished commercial products like alumimum pigments, aluminium arti-
cles and aluminium caps have been held to tall outside it.

See
C.I. T.v. Rashtriya Metal Industries Ltd., (1983) 142 I.T.R. 306 (Cal). a case
under the Companies (Profits) Surtax Act, 1964; Indian Aluminium Co. Ltd. v.
CI.T., (1980) 122 I.T.R. 660 (Cal.);
(1983)140 I.T.R 114 (Cal); Jeewanlal, (1929)Ltd. v. CI.T. (1983) 142 I.T.R, 460
(Cal.) and CI.T. v. Fitwell Caps P. Ltd.
[1986] 159 I.T,R. 454 (Kar). 'So also, item 7 refers, inter alia, to
"cables" which is only a type of thick copper wire used for the
transmission of electricity. It has been held that insulated copper wires of a
type known as winding wires will not fall under item 7 as they are not used for
the above purpose and that an industry engaged in its manufacture is not an
industry eligible for the reliefs of the kind presently under consideration:
See: Hindustan 195 Wire Products v. C.I.T., (1986) 161 I.T.R. 749. This deci- sion
is of no direct relevance here except to point out that no atttempt was made in
the case to contend that they will fall under item 2 of the Schedule which
covers "aluminium, copper, lead and zinc (metals)". Item 11 in the
Schedule refers to "steel castings and forgings and malleable iron and
steel castings". The expressions "casting" and
"forging" refer to processes used in the manufacture or production of
articles of iron and steel and also mean, particularly when used in the plural,
the articles produced by the process (vide: Glossary of Tenns published by the
Bureau of Indian Standards and relating to Iron and Steel: Part VI,
"Forging"). Item 21 which refers to "Seamless Tubes" also
furnishes a similar indication. There is, therefore, a distinction between the
article or thing referred to in the Schedule as "iron and steel
(metal)" and articles or things manufactured from "iron and
steel". Secondly, the decision in State of MB. v. Hiralal, (1966) 17
S.T.C. 313 shows that even the expression "iron and steel"--which is
wider than the expression we are concerned with as it is not further qualified
by the word "metal" was held to mean iron and steel used as raw
material for the manufacture of other goods. The Court held that bars, flats
and plates only represented such raw-material in attractive and acceptable
forms. Sri Gauri Shankar, for the Revenue, contended that the use of the
appellation "metal" in the entry we are concerned with further
restricts the nature of the qualify- ing industry but we are not inclined to
agree. Obviously it is not used to denote the metal in its pristine form as an
ore or as an extraction from the ore. In the context of a manufacturing
industry it is used, we think, for emphasising the distinction between the
metal used as a raw material in the manufacture of various articles and the
commercial articles made therefrom. We would, therefore, attach the same
meaning to the expression as Hiralal (supra) did. In that case, the Court held
that the bars, flats and pieces turned out by the assessee from the scrap metal
were not products manufactured from the raw material but only repre- sented the
raw material rolled out in attractive and accept- able forms. Per contra, in Devidass
Gopal Krishnan, [1962] 20 S.T.C. 430 rolled steel sections were held to be
products manufactured from steel scrap and ingots. But that will not be
conclusive here because the relevant provision here contemplates something
manufactured out of iron ore or iron scrap. The question really therefore is:
having regard to the nature of the iron and steel industry and its processes,
do M.S. bars, rods and rounds represent the raw material for the manufacture of
the articles of iron and steel or are they themselves articles made of iron and
steel? For deciding the above issue, learned counsel on both sides have placed
before us a good deal of literature about the iron and steel industry as well
as the glossary of terms used therein:

196
(a) A succinct summary of the processes involved, illus- trated by a figurative
chart, is given in the very first page of "The Making, Shaping and
Treating of Steel", edited by Lankford and others (10th Edition),. page 1.
It is unnec- essary to set out the process in detail here except to note that
molten pig iron coming out of the blast furnace and iron scrap are fed into
steel making furnaces, wherefrom by a basic oxygen process or electric process
or open-hearth process, molten steel is ladled out into moulds to form ingots.
There are three stages in the manufacture of the steel:

(i) the
first stage when ingots are obtained by Lapping and then teeming the molten
steel into rectangular moulds;

(ii)
the second stage where semi-finished steel is cast in the form of blooms,
billets and slabs by reheating the ingots to an appro- priate temperature and
rolling or forging them into shapes; and (iii) the production from blooms,
billets and slabs-again by process of hot rolling, cold rolling, forging,
extruding, drawing etc.-of finished steel products; bars, plates, structural
shapes, rails, wire, tubular products, coated and uncoated sheet steel etc.

all in
the many forms required by users of steel.

The
third of the processes involves heating the blooms, billets and slabs in
heating furnaces and then processing them through various types of mills:

(iv)
Seamless pile mills: for producing pipes and tubes and skelp mills and other
tubular products;

continuous
Butt-weld pipe mills (v) Plate mills : for manufacturing plates; and (vi) Hot
strip mills : for producing sheets, strips and coils. and cold reduction mills
197 (b)The Explanatory Not to Chapter 72 (iron and Steel) of the Harmonised
Commodity Description and Coding Nomenclature (HCCN) are also on the same
lines. The chapter covers the ferrous metals (pig iron, spilgeleisen, ferro-alloys
and other materials) as well as certain products of the iron and steel industry
(ingots and other primary products and the principal products derived therefrom)
of iron or non-alloy steel, of stainless steel and of other alloy steel. It is
pointed out that iron ore, waste, scrap metal, pre-reduced iron ore and other
ferrous waste is converted by reduction in blast furnaces or electric furnaces
into pig iron or sponge iron or lump iron. Electrolysis or other chemical
processes are used only when iron of exceptional purity is required for special
use. Most of the pig iron is converted into steel in steel works but some are
used in foundries (iron works) for manufacture of ingot moulds, cast iron tubes
and pipes and castings and the remainder are cost into the forms of pigs or
blocks, m casting machines or sand-beds or produced in the form of irregularly
shaped lumps (plate iron) or granulated. Pig iron, cast iron, sponge iron waste
and scrap constitute the primary steel making materials.

Steel
making processes are either pneumatic or hearth proc- esses and the steel produced,by
these and other processes are classified in various ways. Although molten steel
may be cast (in foundries) into its final shape in,_ moulds (steel castings),
most molten steel is cast into ingots in moulds.

_At
the casting, pouring and solidification stages, steel is classified as
'rimming' or effervescent, 'killed' or:non- effervescent and 'semi-killed' or
balanced steel. After they have solidified and their temperature has been equalised,
the ingots are rolled into semi-finished productrs (blooms, billets, rounds,
slabs, sheet bars) on primary cogging or roughing mills (blooming, slabbing
etc.) or converted by drop hammer or on a forging press into semi-finished forg-
ings. Semi-finished products and, in certain cases, ingots are subsequently
converted into finished products. These may be flat products (such as wide
flats, universal plates, wild coil, sheets, plates and strip) or long products
(such as bars and rods, hot rolled, in irregularly wound coils, other bars, and
rods, angles, shapes, sections and wire). These products are obtained by
plastic deformation, hot or cold.

The
hot processes are hot-rolling, forging or hot-drawing and the cold processes.,
are cold-rolling, extrusion, wire- drawing, bright drawing, centreless grinding
or precision turning. The chapter proceeds to classify the various products in
considerable detail.- (c) Reference has also been made to the tariff classi- fications
under the Central Excises and Salt Act, 1944 and the Central Excise Tariff Act,
1975. Our attention was also invited to the Specification and Glossary prepared
for the Bureau of Indian Standards by expert Products Sectional Committees on
the subject of Iron and Steel. Extracts were also furnished 198 from the New Encyclopaedia
Brittanica Macropaedia (15th Edn., Vol.21), Webster's Third New International
Dictionary, the Encyclopaedia of Chemical Technology by Kirk Othmer (3rd en.,
Vol.21) and a book on small-scale steel making by R.D.

Walker.
We do not, however, propose to discuss these ex- tracts and definitions as we
do not think they can assist us in coming to nay conclusion on the issue before
us.

Basically
the argument of counsel proceed on the following lines:

Sri Ramachandran,
learned counsel appearing for the assessee, contends that, in the steel making
industry, the manufacture of ingots, billets, blooms, etc. represents only an
intermediate stage at which the iron and steel metal becomes semi-finished
steel. The semi-finished steel is converted into plates, bars or rods which are
described as "finished steels. According to him, the bars, rods and rounds
continue to be iron and steel_ m a finished form. It is only finished steel
that is subsequently used to manufac- ture, by various processes such as
rolling, cutting, shear- ing, forging, hammering and so on into various kinds
of products, which can be described as products of iron and steel in contrast
with 'iron and steel (metal)', the item covered under the relevant entry of the
schedules. He also draws our attention to a decision of the Calcutta High Court
in Indian Aluminium Co. v. CIT, (1980) 122 I.T.R. 550 where, while following
the earlier decision in Indian Steel and Wire Products Ltd. v. CIT, (1977)108
I.T.R. 802, the court observed that there is really no divergence in view
between the Calcutta and Kerala views and that the real question for
consideration in each case is whether the articles in ques- tion constitute
finished products and represent articles of iron and steel or merely represent
the raw material viz.

iron
and steel (metal) in a different form and shape.

On the
other hand, Dr. Gauri Shankar, learned counsel for the Department, submits that
iron and steel ceases to be a metal when it comes out of the furnace in the
primary steel mills in the form of ingots. At the best, the next stage at which
the ingots become semi-finished products in the shape of billets, blooms and
slabs may also be said only to convert the raw material into a different form
or shape.

But,
he says, by no stretch of imagination can the next stage during which the billets,
blooms and slabs are heated/and passed through various types of mills
enumerated earlier be considered as involving not any manufacture but only a
conversion of the raw material into other forms or other shapes. According to
the learned counsel, the expres- sion "iron and steel (metal)" only
comprehends the iron and steel as it emerges in the form of billets, blooms and
slabs from the steel mills and that all subsequent products wheth- er in the
form of 199 rails, rods (including wire rods), bars, angles, channels, tees,
zees, pipes, tubes, sheets, strips, plates and coils turned out by the various
other types of mills would consti- tute articles made of iron and steel. He
also invited our attention to a clarification by the Central Board of Taxes, in
response to a query from the Federation of Indian Cham- bers of Commerce and
Industry, that "rolling mills making bars and rods are not covered by item
1 of the Fifth Sched- ule".

We
have considered the arguments addressed by both counsel. In our opinion, Sri Ramachandran
is right in con- tending that in interpreting the provisions under considera- tion,
we would do well to keep in mind the background in which concessions to certain
basic industries were intro- duced in the Income-tax Act. The process started
with the introduction of a rebate for exporters under the Finance Act of 1963
which continued till 1966. The Budget speech of the Finance Minister vide:
(1963) 48 I.T.R. (St.) 34 indicates that the incentive was granted to assessees
engaged in the manufacture of any articles in an industry specified in the
First Schedule to the Industries (Development & Regulation) Act, 1951. Item
1 of the said Schedule reads:

Again,
in 1964,hen the Finance Act of 1964 decided to grant a rebate in the
corporation tax payable by companies in order to encourage development of
certain industries which occupy an important place in our economy, the list of indus-
tries named in the Finance Act was similar to and included many of the items,
including items 1 to 3, of the list we are concerned with now. The reliefs were
given to strengthen the reserves and augment the capacity of the corporate
sector to develop. This process was 200 continued under the Finance Act of
1965: Vide, (1965) 55 I.T.R. (St.) 57 and 122 which introduced a higher
develop- ment rebate for machinery or plant installed for the pur- poses of
construction, manufacture or production of any one or more of the articles or
things specified in the list in the Fifth Schedule. The Finance Act of 1966
substituted a new concession to these priority industries basic to the
commercial development of the community. This historical background reflects
the intention of the legislature to grant progressively certain exemptions, reliefs
or conces- sions for certain types of industries which were considered
important for na- tional development-/ The industry in iron and steel and other
metals figures in all these lists_) The only relevance of this background to
the issue before us is that it gives an indication that the incentive,
concession or relief granted under these provi- sions has to be construed in a
broad and comprehensive manner so as to cover all manufacturing activities legiti-
mately pertaining to specified core industry with no limita- tion save what may
be called for by the wording of a partic- ular entry. So far as items 1 and 2
are concerned, as earli- er pointed out, the wording points to a distinction
between the metal which is used as the base and other articles manufactured therefrom.
We have earlier pointed out that pig iron and iron scrap are fed into furnaces
to produce ingots, billets and blooms. But both are iron and steel in different
form, the latter being referred to as "semi-finished steel".

Likewise,
we think, the bars, rods, rounds, wife rods and the like constitute the second
stage in which one gets only "finished" forms of iron and steel.
Having regard to the nature and weight of the metal, it has to be
"finished" to assume these forms before manufacturers of iron and
steel articles can take over and proceed to manufacture articles from them by
drawing wires or converting them into rails or shaping them into tees, zees,
pipes, tubes and the like see CI.T. v. Tensile Steel Ltd., (1983) 141 I.T.R.
223 (Guj) or, again, producing articles of iron like ploughs, shovels,
pickaxes, lathes, blowers, surface guiders and drills as in C.I.T. v. Ludhiana
Steel Rolling Mills, (1989) 180 I.T.R. 155 (P&H).

Whether
the article produced is the raw material or an article made of iron and steel
has to be decided on the basis of the nature of the article and not the kind of
mill which turns it out. It is significant that these items do not draw
distinction between basic steel mills, integrated steel mills and the various
other types of mills that are used in the industry which have been referred to
earlier.

The
Board's clarification, referred by Dr. Gaurishankar, that the machinery and
plant in "rolling mills" will not be eligible for the higher
development rebate would not, there- fore, seem to be justified if it intends
to draw a distinc- tion between the same machinery and plant when used in
rolling mills and when used in other mills in the industry.

If
machinery and plant installed in steel mills where the process 201 includes not
merely the production of ingots, billets and the like but also the production
of bars and rods are eligi- ble for the higher development rebate, it is
difficult to see why the same plant and machinery, when installed in rolling
mills which proceed, from the stage of ingots or billets, to manufacture bars
and rods should not be eligible for the higher rate of development rebate. In
considering the issue before us, we should not be classifications of stages of
manufacture that may be carried away by classifi- cation of stages of
manufacture that may berelevant forother purposes. We would like to emphasise,
at the cost ofrepeti- tion, that what we should examine is not the nature of
the mill which yeilds the article but the nature of the article or thing that
is manufactured and ask ourselves the question whether such article or thing
can be considered as raw material for manufactrure of other articles made of
the metal or is it itself an article made of the metal. On this issue our view
is, as we have already stated, that the goods in the present case fall in the
former category. We think Sri Ramachandran is right in pointing out that the
mild steel rods, bars or rounds which are manufactured by the assessees here
are only finished forms of the metal and not articles made of iron and steel.
They only constitute raw material for putting up articles of iron and steel
such as grills or windows by applying to them processes such as cutting or
turning. The rod or the wire rods (with which some of the decisions were
concerned) are likewise not products of iron and steel but only certain
finished or refined forms of the metal itself.

We do
not think much assistance can be derived for the interpretation of the
provision before us from the Central Excise & Salt Act or the various
classifications statutorily or commercially drawn up for that purpose. They are
more refined and intricate classifications for the purposes of excise duty and
cannot be imported into the present context.

As we
have mentioned earlier, some guidance as to inter- pretation of item 1 to the
schedule can be derived from item no.11, which refers to "forgings and
castings". These ex- pressions obviously refer to articles obtained from
the raw material iron and steel by forging and casting. The argument in some of
the decisions referred to before us that item no. 1 should be interpreted
strictly because of the existence of item no. 11 seems to proceed on an
erroneous basis. It would be more appropriate to say that forging and castings
are not covered by item 1 being articles made of iron and steel but that since
the legislature definitely intended to give relief even in respect of such articles,
item 11 and (also item 21) were introduced. In fact, there is some force in the
contention urged on behalf of the assessees that even if MS steel rods, bars
and rounds cannot be taken as iron and steel (metal), they would fall under the
category of "forg- ings and castings" referred to in item 11. We do
not, howev- er, wish to express any 202 concluded opinion on this aspect
because item no. 11 was not relied upon by the assessee at any earlier stage.

In
C.A. No. 1404/79, the assessee, Krishna Copper and Steel Rolling Mills,
manufactured iron rods and girders out of scrap metal initially converted into
billets. Before the High Court the argument seems principally to have turned on
the question whether an assessee manufacturing these arti- cles out of iron
scrap would be entitled to the higher development rebate. The assessee cited a
circular of the Board that, under item 2 of the schedule, the higher devel- opment
rebate would be available to an assessee who manufac- tured articles from aluminium
scrap [vide, circular no.25 D (XIX-16) dated 10th October, 1966]. The High
Court, on this basis, answered the question by saying that the assessee before
it was also entitled to the higher development rebate though it produced
articles only from iron scrap. This does not really answer the real question
but, for the reasons we have already given, we agree with the conclusion drawn
by the High Court.

For
the reasons stated above we are of the opinion that the view taken by the High
Courts in the present cases does not call for any interference. The appeals,
therefore, fail and are dismissed. But in the circumstances we make no order
regarding costs.

V.P.R.
Appeal dismissed.

201
includes not merely the production of ingots, billets and the like but also the
production of bars and rods are eligi- ble for the higher development rebate,
it is difficult to see why the same plant and machinery, when installed in
rolling mills which proceed, from the stage of ingots or billets, to
manufacture bars and rods should not be eligible for the higher rate of
development rebate. In considering the issue before us, we should not be
carried away classi- fications of stages of manufacture that may be relevant
for other purposes. We would like to emphasise, at the cost of repetition, that
what we should examine is not the nature of the mill which yeilds the article
but the nature of the article or thing that is manufactured and ask ourselves
the question whether such article or thing can be considered as raw material
for manufactrure of other articles made of the metal or is it itself an article
made of the metal. On this issue our view is, as we have already stated, that
the goods in the present case fall in the former category. We think Sri Ramachandran
is right in pointing out that the mild steel rods, bars or rounds which are
manufactured by the assessees here are only finished forms of the metal and not
articles made of iron and steel. They only constitute raw material for putting
up articles of iron and steel such as grills or windows by applying to them
processes such as cutting or turning. The rod or the wire rods (with which some
of the decisions were concerned) are likewise not products of iron and steel
but only certain finished or refined forms of the metal itself.

We do
not think much assistance can be derived for the interpretation of the
provision before us from the Central Excise & Salt Act or the various
classifications statutorily or commercially drawn up for that purpose. They are
more refined and intricate classifications for the purposes of excise duty and
cannot be imported into the present context.

As we
have mentioned earlier, some guidance as to inter- pretation of item 1 to the
schedule can be derived from item no. 11, which refers to "forgings and
castings"- These expressions obviously refer to articles obtained from the
raw material iron and steel by forging and casting. The argument in some of the
decisions referred to before us that item no. 1 should be interpreted strictly
because of the existence of item no. 11 seems to proceed on an erroneous basis.
It would be more appropriate to say that forging and castings are not covered
by item 1 being articles made of iron and steel but that since the legislature
definitely intended to give relief even in respect of such articles, item 11
and (also item 21) were introduced. In fact, there is some force in the
contention urged on behalf of the assessees that even if MS steel rods, bars
and rounds cannot be taken as iron and steel (metal), they would fall under the
category of "forgings and castings" referred to in item

11. We
do not, however, wish to express any 202 concluded opinion on this aspect
because item no. 11 was not relied upon by the assessee at any earlier stage.

In
C.A. No. 1404/79, the assessee, Krishna Copper and Steel Rolling Mills,
manufactured iron rods and girders out of scrap metal initially converted into
billets. Before the High Court the argument seems principally to have turned on
the question whether an assessee manufacturing these arti- cles out of iron
scrap would be entitled to the higher development rebate. The assessee cited a
circular of the Board that, under item 2 of the schedule, the higher devel- opment
rebate would be available to an assessee who manufac- tured articles from aluminium
scrap [vide, circular no.25 D (XIX-16) dated 10 th October, 1966]. The High
Court, on this basis, answered the question by saying that the assessee before
it was also entitled to the higher development rebate though it produced
articles only from iron scrap. This does not really answer the real question
but, for the reasons we have already given, we agree with the conclusion drawn
by the High Court.

For
the reasons stated above we are of the opinion that the view taken by the High
Courts in the present cases does not call for any interference. The appeals,
therefore, fail and are dismissed. But in the circumstances we make no order
regarding costs.